Wednesday, April 23, 2008

Sherrod Brown's Trojan Horse On Free Trade

The supporters of our trade policy rarely mention our exploding trade deficits. In just 15 years, our annual trade deficit has mushroomed to over $800 billion from $38 billion in 1993. With Mexico, our trade surplus evolved into a $90.7 billion trade deficit. With China, our trade deficit jumped to $250 billion today from about $22 billion. President George H.W. Bush once estimated that a $1 billion trade deficit represents 13,000 lost jobs. Do the math.

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Advocates of free trade rarely want to debate the fact that unregulated trade with China has recently allowed toys with lead paint, contaminated toothpaste and poisonous pet food into this country. We take for granted our clean air, pure food and safe drinking water. But these blessings are not by chance: They result from laws and rules about wages, health and the environment. Trade agreements with no rules to protect our health, the environment and labor rights inevitably create a race to the bottom and weaken health and safety rules for our trading partners and for our own communities.

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But cheerleaders for current U.S. trade policy, while mostly shrinking from a debate about the issues that matter to middle-class America, insist that those of us who want more trade – but trade under a very different set of rules – are protectionists.

Now, let's take these issues one at a time. First, in the time period Brown mentions, our economy also grew exponentially and the unemployment rate stayed below 5% more than it stayed above. His doom and gloom scenario simply doesn't mesh with the facts. If free trade with Mexico cost as many jobs as he suggests, then without it we would have had more than full employment. Since that is not actually possible, his doomy outlook is overstated.

That's because free trade is not a zero sum game as Brown suggests. A trade deficit also means that our consumers were given more choice since it indicates that Mexican goods enjoyed a healthy market in the United States. By offering more choice to U.S. consumers, U.S. consumers were by extension able to buy more stuff in general and thus boosting our economy. Furthermore, this $38 billion trade deficit was part of an economy that was north of 10 trillion. Thus, the entire allusion to the trade deficit is nothing more than a trojan horse. Our government spending alone is over one trillion yearly, and yet Brown proclaims that opposing free trade is perfectly reasonable because we added $38 billion to our trade deficit. While he makes that misleading arguement, he fails to mention all of the positives that negative trade deficit brought. (our consumers were given more choice, our companies were allowed to be more efficient, and of course our companies gained access to new markets)

Second, he extols the dangers of our trade arrangement with China which according to him has no rules. This is in and of itself nothing more than a trojan horse as well. That's because later on he says this...

Instead, we have a trade agreement that runs nearly 1,000 pages and is chock full of giveaways and protections for drug companies, oil companies, and financial services companies, and incentives to outsource jobs now held by Americans.

So, on the one hand our free trade agreements have no rules, and yet they run 1000 pages. I suppose in those 1000 pages there were absolutely no rules.

The last part of his piece is yet another trojan horse. That's because the Colombian free trade agreement languished in the legislature for more than two years. In fact, it was amended multiple times to acquiesce those that were concerned with civil rights and environmental issues. Still, the House simply refused to pass it. If this was merely about making the free trade agreement better, why didn't proponents spend the last two years plus doing that. Instead, Pelosi et al have simply killed it. He can't at one end claim that he only wants improve our agreements, and yet disregard that his colleagues killed the agreement outright. If the trade agreement needs to be improved, then improve it. That isn't what happened. They killed the agreement. They didn't improve it.

Furthermore, Brown not only impugns a great ally but frankly misleads if not outright lies about it.

The Colombia Free Trade Agreement is being shopped around Congress by an overzealous White House. Let's put aside, for now, the debate about rewarding a country that has done little to stem the tide of rampant labor abuses and human rights violations – including dozens of murders.

I guess by overzealous he means a White House that proposed this agreement in 2006 and waited to 2008 to demand it get signed. Furthermore, I guess reducing kidnapping and murder by nearly 80% is not stemming the tide of rampant civil rights abuses. Brown refuses to acknowledge that the Uribe government has nearly transformed a country once at the mercy of tyrants and drug dealers, and put it on the path toward peace. He does this for nothing more than naked partisanship.

2 comments:

Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It's a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today's recession may be just a preview of what's to come.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?

At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, my theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China's. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world's population.

Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Please forgive me for the somewhat "spammish" nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Pete I don't necessarily mind spam, but gibberish will be challenged and exposed. In your long rant, almost none of which had anything to do with free trade, there was a whole lot of nonsense.

First, the trade deficit has no direct relationship to the budget deficit. The trade deficit contributes negatively to the GDP. The GDP is a measure of economic growth. Now, obviously a slow growing economy won't get as many receipts which will contribute negatively to the budget deficit. On the other hand, while our trade deficit has increase so has our GDP, so the first part of your rant has no roots in reality.

Our budget deficit has a lot more to do with out of control spending than any trade issues. NCLB, Social Security, Medicare, Medicaid, the bridge to nowhere and thousands of more bloated government programs contribute to the budget deficit.

You said somewhere that our world's ballooning population will soon leave people with no place to live. Nonsense. The entire population of the WORLD can fit in the state of Texas. Thus, you wrote a book and didn't realize that the root issue of your book was nonsense. That makes every other part of your book suspect.

If we were in a situation where there was simply no room for anyone to live in, your theory might hold water, however apparently you did so much research for a book that you didn't realize that the world still has plenty of space for all the people in it.

If you ever travel down highway 57 from Chicago to Champaign and see hundreds of miles of corn fields, you will have to wonder how someone could make such an idiotic claim as to say that population is cramped. In the middle of the state of Illinois there is nothing but empty space. The same can be said for most of the states in the union in large portions of their space. There is simply nothing.

I am really tired of demagoguery like the one you just perpetrated.

Your theory is bunk. The idea that our growing trade deficit is responsible for our growing budget deficit is bunk.

I don't mind if you try to use my comments section as a free commercial for your enterprise, but make your enterprise legitimate. What you just said is utter nonsense.